Startups and strategic partners, a whale of a tale

Understanding the difference between Power and Performance organizations

In a conversation about opportunities for collaboration with startups Ali Dalloul, General Manager of Ambient Intelligence at Microsoft and I were having he beautifully articulated the conundrum organizations at Microsoft’s scale face when considering how best to engage with emerging technologies.

Ali frames the challenge as a balance between innovation and scale. Companies the size of Microsoft are like blue whales, they’ve achieved their size by feeding in markets that are measured by the billions. This scale is both their biggest strength and their biggest constraint. They are tough to stop in the near-term, but if they can’t swim in oceans of enormous opportunity they begin to starve.

But all markets shift, so it’s not enough to just feed in the same spot forever. This pressure to move isn’t just a question of internal need, but additionally one of external market perception. Companies perceived to be in motion build market momentum and attract customers, capital and talent. Those who appear lost at sea slowly sink into the deep.

Ali quoted a Geoffrey Moore continuum large companies face when deciding what pace of motion to set, Moore’s Power & Performance. Organizations with tremendous market Power have the freedom to innovate and set their sights on feeding grounds which are still far off. Often these companies are still benefiting from the swift currents of their original founders. Think of Amazon, Facebook and Google.

Continuing on Moore’s Power & Performance framework, Ali said organizations who no longer have the Power market position have to set their sights on markets much closer in. They don’t have the permission to innovate at the same scale, and must now demonstrate their market strength through Performance. Performance companies are continuously measured and weighed and must be more cautious in their moves. These whales dare not swim too far into the unknown.

The challenge then becomes one of culture. Performance organizations have no choice but to be precise, optimizing for efficiency. KPIs must be hit, forecasts must be met. A culture of Performance isn’t typically conducive-to or accommodating-of radical innovation. Disruption by its very nature is turbulent. Yet innovative corporates that project Power cannot, by definition, compromise Performance – it is a healthy tension, and those who traverse that continuum are able to reinvent themselves and continue to shape markets. Those who are only focused on one or the other can only go so far.

Startups are almost always seeking far off feeding grounds. Their innovations are impressive, but typically ahead of their time. The ecosystems in which they may eventually flourish are still forming, and the natural selection of winning and losing characteristics is still in full swing.

In the case of corporates seeking a position of Power, they will likely have their own view of how these factors will play out and have strong opinions, and maybe even their own projects underway. So rather than facing the resistance to change the startup might face in a Performance organization, in a Power company the startup may face an even more powerful difference in dogma.

So the challenge for startups in working with established enterprises isn’t fundamentally one of resource, corporate balance sheets are generally strong at present. The challenge is aligning the nature of the innovation to the type of the organization. The cultural and cadence of a Performance organization may not be most hospitable environment for a rapidly iterating startup team. Power organizations may see the problem differently, or just not have the capacity to add on another new initiative.

In the case of Microsoft, a very strong Performance culture, with an equally strong historical position of Power in the PC/Server era, it has undergone a strategic transformation into a position of Power in the Cloud, and is well positioned for the future with strategic investments in core areas of innovations in Quantum Computing and Artificial Intelligence (AI), to continue to create positions of Power in the future.

Ali’s advice for startups more broadly is to understand the nature of the organizations with whom the look to strike strategic partnerships. Their size, market position, and culture will set the context for potential relationships.

If you want to be the barnacle that sticks, you need to know your whales.